Viridien – Delivery - Model Update
All,
Please find our updated analysis here.
Viridien has delivered on the promise to move to an asset-light business and has been rewarded with rising free cash flow generation as payments for Seismic Exploration vessels fell away this year. More exploration has further boosted both the Data and the Equipment side of the business. Viridien’s €SSNs are trading at around 6%, so a little tight for our interest. The oil price is not likely to fall much below $50 per barrel in 2026, so the E&P cuts that could push yields higher are not likely. The volatility in the equity of Viridien means we are reluctant to play here either, even though the current equity capitalisation is around $200m below our DCF.
Investment Considerations
- We have not taken a position in the SSNs due to pricing. There is limited upside as the SSNs are trading above their call price. There are a potential 5 points of downside in the € SSNs, but this is unlikely. Trading out to a YTW of 7.5% (103c/€) would require oil to be expected to trade below $50 for a protracted period of time, leading to greater-than-expected 2026 E&P budget cuts.
- Viridien has $146m in cash and a $125m RCF, so liquidity is strong.
- Our DCF model has around $800m of equity beneath the bonds, broadly in line with the current equity capitalisation.
- The move to an asset-light model has reduced the level of fixed costs, so the impact on EBITDA of any undershoot in 2026 revenue (vs our projections) will be less than in previous downturns.
- The Data library alone is worth around 50% of the debt.
Key Conclusions
- Viridien's results continue to improve as our trading section shows. Lower lease costs have boosted cash flow, and E&P capex remains robust despite the recent falls in the oil price.
- Management expects to call more of the bonds in 2026/27.
- Our DCF calculation points to >€1bn of equity under the bonds (current market cap is €800m; free cash flow generation has improved as Viridien has moved to an asset-light model. Viridien is still vulnerable to increased costs if day rates for seismic vessels rise.
- Seismic data and equipment are one of the more volatile areas in the E&P market, as it is more vulnerable to short-term budget cuts, and the increasing concentration of E&P customers is reducing the pricing power of suppliers like Viridien.
- Veridien is the largest player in its sub-segments, and its Data Library is one of the most extensive. As the Company section shows, the value of the Data Library covers around 50% of the debt.
Recent Trading
23Q4 Trading Review:
- The Q3 result was strong; the company reaffirmed its $100m net cash flow expectations for the full year. Repayment or factoring of $50m in overdue receivables (from Pemex) could add another $20m to net cash flow in Q4. Veridien intends to use a proportion of its cash to continue buying back and calling bonds under the terms of the indenture, which will continue to support the price.
- Geoscience Revenue is up 13% YTD, and despite the lower oil price, there has not been a cutback in E&P budgets. If the oil price is persistently <$50 next year, we would expect some tightening of spending on surveys.
- Earth Data revenue was up 21%, and relicensing fees were important in the quarter due to M&A activity, so we may see a drop in Q4. The value of the Earth Data library is $534m, which equates to a 50c/$ recovery for the SSNs. EBITDA from the two divisions is up in line with revenue, so Veridien is not sacrificing margin for volume.
- Sensing & Monitoring were stronger than we thought, as marine order rebounded in Q3 (still -24% YTD). EBITDA margins were higher, reflecting fixed cost recovery in this manufacturing business.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055